How to Get Some Big Tax Breaks With Careful Year-End Planning
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Here's your money briefing for Tuesday, November 23rd. I'm J.R. Whalen for The Wall Street Journal. We haven't heard about stimulus checks in a while, but as the current tax year draws to a close, a lot of people who didn't get the money earlier in the year may still be able to find a way of claiming it.
If you can reduce your income for 2021, you may qualify in a way that you didn't qualify before.
On today's show, we'll talk with our tax reporter, Laura Saunders, about ways to qualify for stimulus money, as well as other payments like child tax credits and other things that taxpayers should be doing to prepare before the end of the year. That's after the break.
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Around this time of the year, we typically talk about how people can get a head start on getting their taxes in order for the current year. But there are special factors this year that can make it even more important to prepare. The right planning could mean a lot more money in your pocket.
What year-end tax planning issues should I start with for 2021 stimulus and credits?
WSJ tax reporter Laura Saunders is here to walk us through it. Laura, it's great having you with us.
It's great to be here. Thank you so much.
So you know, Laura, aside from not having to deal with tax planning and the blizzard of paperwork all at once next year, what kinds of quirks in the tax laws can benefit people who start getting their ducks in a row now?
Most planning that reduces your 2021 taxes has to be done before the end of the year. And this year, there are several provisions that are just for 2021 provisions, maybe unless Congress extends them, but they were connected with the pandemic, like the stimulus payments. And so some of these are quite large, and it's a good idea to see if you can plan now and really make a difference in your tax bill next year.
Yeah, one of those things that can make a big difference is a stimulus payment. So let's tackle that first, the third payment of stimulus that was rolled out earlier this year. Now, if somebody didn't qualify for a check when those payments went out, how could they put themselves in line for that money now?
Well, this is really important. That third round of stimulus payments in March was $1,400 per household member. That is much bigger than the other ones. And they were based on people's 2019 or 2020 tax returns, and you had to have certain incomes to qualify for them. And this is really important. For married couples, it was $150,000 of income. For singles, it was half that, $75,000. And the phase-out is really, really steep, like at $160,000. But what that really means is that if you can reduce your income for 2021, you may qualify in a way that you didn't qualify before. Maybe something happened. Maybe somebody left a job this year. Maybe a baby was born and you get an extra $1,400 payment. But you might not get it if it's $162,000, but you will get it if it's $149,500.
So it's really worth seeing if you can rearrange your income if you're in that phase-out zone.
You say rearrange your income.
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